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Archive for the ‘Earnings’ Category

photos_large_5Don’t get your underwear wrapped around the axle with that title.

“Off the reservation” is a common phrase, which many people use without considering the context of its original meaning. Namely, that Native American peoples were restricted to reservations created by the U.S. government, and their freedom was severely limited by the terms of the treaties they were often forced to sign.

I’m using it in its literal sense (to deviate from what is expected) and as you might anticipate it’s a reference to Indian motorcycles rampant sales and intractable competition versus the Harley-Davidson Motor Company.

Harley-Davidson posted flat sales for Q2 2014, yet Indian/Polaris posted higher revenues for the second quarter 2014 at $1.01 billion, reflecting an increase of 20% over last year’s second quarter sales of $844.8 million.  Polaris stated that sales at its motorcycles division soared 107% year-over-year to $103.1M in large part due to strong demand for the new 2014 Indian motorcycles.  Clearly they have deviated from what was expected.  One could debate that given Polaris motorcycle revenue is much smaller than Harley’s, it’s easier for them to hit double digit growth numbers, but that would be down playing the strong demand for the Indian products.

Additionally, Harley-Davidson stated its share of the market for new heavyweight motorcycles with engines of 601 cubic centimeters or greater slipped to about 50% in Q2 2014 from 53% a year earlier.  Another indicator that competition is weighing on the company.

Financial calls with terms like ‘diluted earnings’ and ‘operating efficiencies’, don’t mean much to riders and it’s not like Harley-Davidson is hurting.  But, it’s good to see Indian doing well with North American retail sales up 15% year-over-year in the second quarter.

Congrats!

Full Disclosure:  I’ve got a riding buddy who traded his H-D Street Glide in on a new 2014 Indian back in January and loves it.  There is no dealer in Oregon yet and he went to the extra effort of buying it from a Seattle dealer.

Photo courtesy of Indian/Polaris.

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HOGchartHarley-Davidson announced it’s Q2 2014 financials, indicating that Q2 net income was $354.2M on consolidated revenue of $2.00B, compared to net income of $271.7M in the year-ago period on consolidated revenue of $1.79B.

Dealers worldwide sold 90,218 new motorcycles compared to 90,193 motorcycles in the year-ago quarter.  U.S. sales were flat/down as dealers sold 58,225 new Harley-Davidson motorcycles in the quarter, compared to sales of 58,241 motorcycles in the year-ago period.

Some interesting nuances from the analyst call:

  • Market share was down 2.6% on a year-over-year basis at 50.3%.
  • Management confirmed the Road Glide is coming back with the new 2015 product launch in August.
  • In the U.S. the Road Glide accounted for 10% of sales
  • There were self-inflicted wounds with the intro of the Street on Sportster sales which was down double-digit and compounded by lack of Street inventory.
  • Management stated Indian touring bikes have had little impact on Rushmore bikes which in the first half were up double-digits.  But, read this HERE which colors the picture a bit different.
  • The Street start-up issues are supply chain in nature and related to this being the first time H-D is manufacturing a product internationally.
  • H-D now expects to ship between 270K and 275K motorcycles worldwide which represents growth of approximately 3.5% to 5.5% versus prior year.

Despite the soft Q2 sales, H-D believes the demand fundamentals for the business remain intact and underlying growth trends are strong.  The industry has grown for three straight years coming into this year and there is more investment in the industry than Harley-Davidson management has seen in the last five years in terms of new products, marketing and advertising.

UPDATED: August 1, 2014 – Harley-Davidson officially reveals the 2015 Road Glide.

Photo courtesy of Edgar and H-D.

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Conflict Minerals

Conflict Minerals

It’s unlikely that you think much about this, but when you press the BOOM!™ Audio Infotainment ON button,  it activates the audio system’s logic board which is soldered together with tin.  The Tantalum helps keep highly conductive materials in check and helps signals pass swiftly through the device.  And the Tantalum Oxide helped engineers create thinner, smaller electronics to reduce the space required on the motorcycle.  And the Gold which is highly conductive and used sparingly, is used in wires and in integrated chip (IC) films when a very pure connection between components is required.

There are numerous components on a Harley-Davidson motorcycle that may contain conflict minerals: brake pads, fuel tanks, on-board electronics, radiators and batteries.  I previously blogged on this HERE back in 2011.

For the uninitiated, conflict minerals — tantalum, tin, tungsten, and gold, or “3TG” — is sourced from or distributed by 10 countries in central Africa, namely the Democratic Republic of Congo (DRC).  The conflict minerals moniker comes from the fact that proceeds from their sale are used to fund armed groups that commit human rights crimes and other atrocities in regional African conflicts.  More people have heard about “Blood Diamonds” than conflict minerals, but the atrocities are similar.

A miner washes tin ore in the Kalimbi mine in the eastern Democratic Republic of Congo.

A miner washes tin ore in the Kalimbi mine in the eastern Democratic Republic of Congo.

And there is always the presence of the militant groups or organized criminal gangs, and the nexus between them which creates an intricate link between terrorism and organized crime.   These armed groups reap more than $100 million a year from the mineral trade in eastern Congo, and regularly slaughter innocents as they jockey to control the region’s most valuable mines and transportation routes.

Harley-Davidson has publically committed to supporting responsible sourcing of its materials from suppliers that share their values around human rights and environmental responsibility. The motor company is committed to complying with the “Conflict Minerals” requirements under Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The 2010 law requires companies to publicly disclose whether their products contain conflict minerals.  And Harley-Davidson has until May 31, 2014, to file their first SEC disclosure regarding conflict minerals, with annual disclosures required after that.

Harley has posted and you can read their disclosure HERE.

In Section 4, it highlights that responses to their inquiries from ten suppliers which suggest that 3TG is sourced from Covered Countries, but it’s not clear if it was in the products or directly benefited armed groups.  Harley-Davidson communicated the need for additional information with the relevant suppliers and whether any of the 3TG that these suppliers reported were actually contained in components or parts that the suppliers supplied to H-D.

To be clear, Harley-Davidson did not find any evidence to suggest that any of the 3TG in their supply chain may have originated in a Covered Country or finances any armed groups in the Covered Countries, but did suggest that the quality of information that they obtained from their supply chains needed improvement and they were taking future actions to improve their processes.

So the question of the day is if given a choice, are you more likely to buy a “Conflict Mineral” free motorcycle?

I believe that H-D is a responsible global corporate citizen in all aspects of their business, both internally and externally.  But, wouldn’t it be cool if they pushed hard on this initiative and announced they are proud to manufacture the world’s first commercially available conflict-free motorcycle!

For more information you can track Harley-Davidson updates on this topic HERE.

A good video guide by VICE on the Congo is HERE.  The Conflict-Free Sourcing Initiative is HERE.  Looking to get more involved?  Check out: The Enough Project; The Falling Whistles; The Responsible Sourcing Network; Resolve.

Photos courtesy of Reuters and the Periodic Table.

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Ray Jordan (Salem, OR) – 105 flags at the  105th Anniversary Parade

Ray Jordan (Salem, OR) – 105 flags at the H-D 105th Anniversary Parade

There is an inane concept in America that the customer is always right.

And in the motorcycle community managing owner expectations through proactive communication and providing personal service has a considerable positive impact on overall satisfaction with the motorcycle ownership experience.

At least according to this J.D. Power and Associates report.  Two of the best practices, which are common among high performers, are managing owner expectations through proactive communication (including following up after a sales visit) and providing personal service (including a fluid and seamless process in servicing their motorcycle).  In the luxury motorcycle segement confronted with limited consumer spending, it is to the advantage of motorcycle manufacturers and dealerships to identify and implement the best practices that satisfy owners that may lead to higher revenue.

But, someone at H-D believes the world is just full of bullies who believe if they rant loud enough, they’ll win and that’s not gonna happen on their shift!

Dave Zien, cruising  with patriotic flags.

Dave Zien, cruising with patriotic flags.

I’m talking about Milwaukee-based Dave Zien, aged 64, who has been cruising around the country with patriotic flags on the back of his new Harley-Davidson Trike which has accumulated approximately ~15K miles.   Mr. Zien was rejected a warranty repair for a broken clutch—the dealer citing his flags “drag” (the flags create) on the engine and transmission as the cause of the failure.  In fact, Mr. Zien is a good customer and rode into the Motorcycle Hall of Fame in 2000 by logging more than a million miles on his 1992 Harley motorcycle.  Mr. Zien voiced his displeasure throughout the motorcycle community and telling the local Fox News station that the motor company initially informed him he was “blocked” because of his flag displays and can never get any warranty work for seven years.  H-D later recanted that statement and said his motorcycle is still under warranty, but they would not cover the clutch failure.

This is a mysterious approach to that “seamless process” in servicing motorcycles.  The JD Powers report clearly points out that sales volumes and revenue of ancillary goods and services tend to be considerably higher—at motorcycle dealerships that provide a highly satisfying experience.

It’s this writers view that H-D should apologize for wasting Mr. Zien’s time and take the appropriate corrective action under warranty.

Ray Jordan photo courtesy of MKEimages.com and Mr. Zien photo courtesy of Yahoo.

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HD Stock ChartI missed this a few days ago, but imagine that the first quarter results at Harley-Davidson were like eating a bag of those Krinkle Cut™ Salt & Pepper chips… a great taste with a satisfying crunch!

Yeah, I have a weakness for the hyper-engineered, overly marketed, addiction-creating potato chips.  But, I’ve digressed.

Q1’14 Financials:  Harley-Davidson reported its first-quarter 2014 retail sales in the U.S. were not as high as expected — in large part because of the brutal winter season that gripped the eastern two-thirds of the country and the absence of the Road Glide models.  Still, sales increased 3 percent in the first quarter of 2014 and the motor company maintained a 56 percent market share in the U.S.

On April 22, Harley reported it sold 57,415 motorcycles worldwide in the first quarter of 2014, a 5.8 percent increase over the same quarter last year. The increase helped boost the company’s total revenue by 10 percent, with earnings up 22 percent.  Most of that growth came from international sales as dealers sold 21,685 motorcycles, an increase of 10.9 percent compared with the first quarter of 2013. Sales in the U.S. increased by 3 percent over the same period last year.

The company had net income of $265.9 million, or $1.21 a share, for the quarter which was up from net income of $224.1 million, or 99 cents a share, in first quarter 2013.  Harley-Davidson said it expects to ship between 279,000 and 284,000 motorcycles in 2014, which would be an increase of between 7 and 9 percent from 2013.  It was noted in the financial call that the absence of the Road Glide models continues to impact the company’s bottom line which in the first quarter of 2013, sales of the Road Glides represented 10 percent of its sales.

Keith Wandell, Harley-Davidson’s CEO, chairman and president, said in a press release that “Our dealers had a solid quarter of retail motorcycle sales.”  He went on to say, “Sales in the Asia Pacific region were up strongly, and we are encouraged by the continued growth of new Harley-Davidson motorcycle sales in Europe. We’re also excited to be entering the heart of the retail selling season in the U.S., having achieved first-quarter retail growth of 3.0% in the midst of a long, cold winter.

After the earnings report was released, the company stock (HOG) went from $68 per share at close to establishing a new 52-week high of $71.99 per share.

Then there was some additional investment buzz from stock analyst’s and then with impeccable timing on April 29th, Mr. Wandell sold 45,308 shares of the company’s stock.  The stock was sold at an average price of $73.45, for a total value over $3.3 million.  The sale was disclosed in a legal filing with the Securities & Exchange Commission, which is available at this link.

But wait, there’s more…

HBO Films

HBO Films

Loan Payback:  H-D announced that it paid off the $303 million, high-interest rate loan from Warren Buffett’s, Berkshire Hathaway Inc. during the quarter, funds that were used for Harley’s financing company.

You might recall that during the stock market crash of 2008, Harley’s finance subsidiary was unable to loan money to customers because the capital markets had shut down and liquidity was running low.  You may have read the book or watched the “Too Big To Fail” television drama film on HBO?  The money/loan helped Harley-Davidson continue financing motorcycles through its financing company, but the loan came with a hefty 15 percent interest rate.  It was a bridge that H-D desperately needed and Berkshire Hathaway was the only company from which Harley could borrow money without giving up its equity.

Harley-Davidson-Softail-Breakout-2013FXSB Recall:  The only dark cloud in all this good news hoopla was the motorcycle recall on 2013-14 FXSB and FXSBSE models manufactured from March 20, 2012, through March 10, 2014, to identify and fix a problem with the fuel level sensor signal.  The NHTSA Campaign Number is 14V185000 and effects approximately 9,100 motorcycles.

It turns out that suspension variances may affect the gas tank mounting angle, causing the fuel level sensor to read inaccurately. “The gauge inaccuracy may cause the motorcycle to run out of fuel unexpectedly, possibly even before the Low Fuel Warning lamp illuminates,” the recall stated. This would cause the motorcycle to stall, increasing the risk of a crash.  Harley-Davidson will notify owners, and dealers will update the software to recalibrate the fuel level sensor signal, free of charge.

Sometimes it’s hard to rise above in our country, because the haters are lined up to tear you down.  But, I want to say congrats to Harley-Davidson!  I’ve got a mental image that the senior leadership team is doing celebratory high-fives, along with a Wandell victory dance or a watching Mark-Hans Richer air-guitar somersault on the board room table.

Photo’s courtesy of Google Finance, H-D and HBO Films.

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2013 Harley-Davidson Road Glide

2013 Harley-Davidson Road Glide

Harley-Davidson Inc. reported it’s Q4’13 financials today posting a 9.7% year-over-year rise in earnings to 34 cents per share from 31 cents in the year-ago quarter.  The year-over-year increase was due to higher revenues and lower operating expenses in the Motorcycles segment.

Revenues improved 1.7% to $1.19 billion and operating income rose 5.1% to $122 million from $116.1 million in the fourth quarter of 2012.  Net income increased 6.8% to $75.4 million from $70.6 million a year ago.

For the 2013 full year results revenues increased 5.7% to $5.9 billion from $5.58 billion in 2012 and net income increased to $734 million from $623.9 million a year ago.

Harley-Davidson shipped 46,618 motorcycles to dealers and distributors worldwide during the 4th quarter which was down 0.95% from 47,067 motorcycles in the fourth quarter of 2012.   In the U.S., shipments improved 6.3% from the year-ago quarter to 27,387 units and commands roughly 50% share of the U.S. market,

Keith Wandell, chairman, president and chief executive officer of Harley-Davidson called the year “outstanding.”

So were there any other highlights?

Well yes… John A. Olin – Chief Financial Officer and Senior Vice President stated, “As we anticipated, U.S. retail sales growth in the fourth quarter slowed from the third quarter’s growth rate, behind 2 key drivers…”   “The second was the impact of the absence of the popular Road Glide models in the 2014 model year.  When you look at Q4 of 2012, the Road Glide represented 9% of that volume, and that Road Glide customers are incredibly loyal to that motorcycle. And that’s probably the biggest impact that we had on our 2013 retail sales in the fourth quarter.”

Mr. Olin also talked about a “fatten the tail” strategy.

Huh?

I’m not 100% sure of the context, but simply put, a financial fat tail describes a rare and extreme event.  On one end of the spectrum, are products like Project RUSHMORE that encourage trade-up at a high revenue and at a very high margin, and typically are aimed at H-D’s core customer. But, Rushmore is selling extremely well with outreach customers. And in addition, the Street Glide is the #1 selling bike to women, young adults, African-American and Hispanic’s.

Suffice to say that the Road Glide was a huge part of H-D sales and it’s no longer there.  Yet, the quarter was great!  Congrats to the H-D team.

Photo courtesy of The Bike Exchange

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Flexible-WorkersWe read everyday how the economy is ever so slowly improving and there was some good news this week for the long-term unemployed.

According to news reports the motor company is hiring 400 temporary workers as part of a seasonal surge in production at the assembly plant in York, Pa.

York is where Harley-Davidson assembles heavy weight motorcycles.   You might recall the widely publicized dispute with the union a few years ago that allowed them to use “casual” workers to do some of the production work at all their existing plants.  A “casual” worker is a temp worker, not employed year ’round, to manage temporary high volume.

According to Harley spokeswoman Bernadette Lauer the jobs start at the end of January and run through the end of May with salaries ranging from $16.75 to $23.30 per hour.  To apply or request to be contacted visit H-Dflexibleworkforce.com.

Harley’s revenues are still well below their pre-crisis highs, but they get credit for revenues and unit sales which have enjoyed a nice bounce over the last year and there is new swagger in the brand.

Photo courtesy of H-D.

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